Default notices hit record in county

The data:

In a sign that the housing market remains deeply troubled, a record number of San Diego County homeowners received notices of default from their lenders last month, a trend analysts believe will persist for the rest of the year.

The MDA DataQuick research firm reported yesterday that there were 3,832 notices of default, the first step in the foreclosure process, a more than 10 percent increase over February and a 32 percent rise year over year.

The volume of defaults in March and during the first quarter of this year was the highest since 1992, when DataQuick started tracking them.

Rising unemployment has likely contributed to the sharp spike in defaults, but another factor is that lenders and mortgage servicers are catching up with a growing backlog of delinquent borrowers, real estate experts say.

In recent months, major lenders held off initiating foreclosures amid efforts by the Obama administration to aid distressed borrowers. Now that those voluntary moratoriums are coming to an end, increased foreclosure activity is likely to follow.

Foreclosures in San Diego dipped sharply last month, falling to 734, a 40 percent drop from a month earlier and the lowest level since November 2007, according to DataQuick.

“The whole foreclosure process is a lagging indicator and happens after a lot of economic distress, so we'll see a lot of foreclosure activity well after the economy recovers,” DataQuick analyst John Karevoll said. “For now, we'll have a little bit of a catch-up period, but I do think foreclosures should snap back and will be a record for the second and third quarters.”

The probable result will be a growing inventory of deeply discounted properties on the market, which would continue to depress housing values, experts believe.

“I think there's a shadow inventory of foreclosures lenders are holding onto,” said Dave McDonald, president of the San Diego County chapter of the California Association of Mortgage Brokers.

“Lenders are afraid to put them all on the market at the same time. It's a vicious cycle right now. And as unemployment increases, foreclosures increase, and as foreclosures increase, prices will decrease.”

The widespread collapse of the housing market, fueled by the rampant use of risky subprime loans, has hit California hard, with record numbers of homeowners defaulting on their loans during the first quarter, according to DataQuick.

Some of the riskiest loans appear to have been written between August and November 2006, when more than 9 percent went into default, according to a DataQuick analysis.

Of the 2.1 million loans made in California in 2007, the default rate so far is 4.6 percent, a figure that is likely to rise significantly this year, DataQuick predicts.

While President Barack Obama's recently announced foreclosure prevention plan is designed to make borrowers' mortgage payments more affordable, it is still too early to know how many borrowers ultimately will be eligible.

“Things look very, very bad because you have two disturbing trends: rapidly falling housing prices that will continue for the immediate future, and we're losing huge numbers of jobs, which will continue,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington.

“We're getting default rates now on adjustable rate prime mortgages that you'd expect on subprime mortgages during normal times. Obviously, some people will be helped by the proposals of the Obama administration, but they shouldn't have that much of a noticeable dent in the rate of foreclosures.”

Pablo Frausto, 53, a City Heights homeowner who has been unable to make his mortgage payments for the past year after losing his ornamental iron business, is awaiting word on whether a proposed loan modification from Countrywide will be approved.

The monthly payments on the three-bedroom home he bought in 2003 for $250,000 ballooned from $800 to $2,300 after he refinanced into an adjustable rate loan in late 2006 and pulled out $100,000.

After repeated efforts to secure a loan modification on his own failed, Frausto turned to the nonprofit Community HousingWorks for help. A proposed loan modification that would extend the term of his mortgage to 38 years, up the balance to $336,000, and reduce his initial monthly payments to $1,000 is under review by the lender.

“It's a very good deal if I get it because I can stay in my home and I won't be homeless,” said Frausto, who recently got a job working for a fencing company. “But if it wasn't for my age I'd walk away from the loan. My house is in shambles and needs a lot of work, and it's still going to take 10 years for the house to be worth what the loan is.”

Defaults continue to be concentrated in lower-priced neighborhoods that attracted large numbers of first-time buyers during the housing boom in the middle of the decade.

Eastern Chula Vista, west Vista, San Ysidro, east Escondido and Logan Heights were among those areas with the highest concentration of foreclosure activity last quarter, as measured by the number of defaults per 1,000 homes.

There may be some evidence of mortgage distress migrating to higher-income areas like La Jolla, Solana Beach and Carmel Valley, which experienced their highest rates of defaults since the first quarter of 2007, according to DataQuick.

“We're thinking that we're seeing the beginning of a broader migration (statewide),” DataQuick's Karevoll said. “But most of the distress is still in geographic areas where we had a lot of frenzied activity in 2006 and 2007.”